Positive result lifts payout hopes

A third positive price result on the trot in Fonterra's latest online dairy auction GDT has helped persuade at least one bank's economists to lift their dairy payout forecast to $6 for the current season.

Westpac said its upgrade from $5.70 for a 100 per cent share-backed Fonterra farmer reflected the continuing improvement in dairy commodity prices.

But BNZ economist Doug Steel said he had seen nothing to indicate the need to raise his bank's forecast of $5.70. Fonterra forecast payout, made in August, for the 2012-2013 season is for a payout of $5.65-$5.75.

The average price on Fonterra's overnight auction lifted 0.7 per cent on a trade weighted basis, the third increase in a row and tracking a lift in global commodity prices.

The average winning price was US$3348 (NZ$4105) per metric tonne.

While still increasing, that is lower than the 1.1 per cent gain seen at the last auction two weeks ago.

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Westpac said prices were improving as world dairy supply continued to be tight owing to drought in much of the northern hemisphere.

GDT prices had risen 29.6 per cent on a trade weighted basis since the May trough in dairy prices, Westpac said.

Over the same period, the Kiwi dollar had increased by around 5 per cent, only partially offsetting the world dairy price gains, the bank said.

The BNZ's Steel said the strong uptrend in dairy prices from the mid-May lows appeared to be maturing.Though the average GDT price had improved for a third time, the increases were slowing down a bit, he said.

He expected prices to tick higher over the next 12 months but it was still a long time until the end of the dairy season and final payout, he said.

Fonterra's GDT is closely watched by the agricultural sector and economists in general as it is the chief factor Fonterra uses to determine its farm gate price, or the payout farmers get per kilogram of milk solids.